The Quick Read: A cash-out refinance replaces your first mortgage with a larger one and hands you the difference in cash. A line of credit adds a second lien and leaves your first mortgage alone. A traditional refinance (limited cash-out) swaps the first mortgage and pays closing costs, with only incidental cash back. On the conventional side, a cash-out carries a seasoning requirement that a traditional refinance largely avoids, and its leverage depends on how you occupy the home. Everything below is subject to lender guidelines and full file review, and none of it is a commitment to lend.
The right option depends on whether you want a lump sum, flexible borrowing, or just a better loan. A cash-out refinance fits the homeowner who wants one lump sum and is fine resetting the whole first mortgage. A line of credit fits the homeowner who likes the current first mortgage and wants to borrow in pieces over time. A traditional refinance fits the homeowner who wants to change the loan, not pull equity out. Lendmire is a mortgage broker that arranges these loans through wholesale lenders. For program details, see Lendmire’s cash-out refinance programs page.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
Side-by-Side
| Factor | Cash-Out Refinance | Line of Credit (HELOC) | Traditional Refinance |
|---|---|---|---|
| What happens to the first mortgage | Replaced | Stays in place | Replaced |
| Cash to you | Lump sum at closing | Draws over time | Incidental only |
| Leverage (conventional) | 80% one-unit primary; 75% on 2-4 units, second homes, investment; the wholesale no-MI lane reaches 89.99% | Set by each lender | To 95% one-unit primary (97% in some cases) |
| Seasoning | First mortgage 12+ months old; 6 months on title | Varies by lender | Fewer restrictions |
| Credit floor | 620 decision score on wholesale conventional | Varies by lender | 620 decision score on wholesale conventional |
| Mortgage insurance | Above 80% on the agency path, except the wholesale no-MI lane | Not an agency product | Above 80% |
| Occupancy | Primary, second home or investment; sets leverage | Varies by lender | Primary residence typical |
| Payments | One loan | Two loans | One loan |
| Documentation | Full income, asset, appraisal file | Lender-specific | Full file; streamlines are lighter |
Read the credit and leverage rows as the wholesale conventional envelope. A line of credit sits outside the agency framework, so each lender sets its own rules. Some set a higher credit floor than conventional, and some set a lower one.
What Each Product Does Mechanically
Cash-out refinance. The new loan pays off the first mortgage, then sizes against the appraised value. The leverage cap counts every lien. Fannie Mae’s Selling Guide requires the mortgage being paid off to be at least 12 months old, measured note date to note date. Freddie Mac’s Guide generally wants one borrower on title for six months before the note date. A home owned free and clear is also treated as cash-out.
Line of credit. The CFPB describes a HELOC as an open-end line you can borrow against repeatedly. It usually has a variable rate, so payments can change month to month. After the draw period, payments are often significantly higher, and in some cases the whole balance comes due when repayment begins.
Traditional refinance. The new loan pays off the existing first mortgage, closing costs and a purchase-money second lien. Only incidental cash back is allowed, and each agency measures it differently. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000. Freddie Mac allows the greater of 1% of the new loan amount or $2,000. Buying out a co-owner under a written agreement also counts as limited cash-out at both agencies.
Requirements, Item by Item
Equity comes first. On a one-unit primary residence, a standard conventional cash-out tops out at 80% loan-to-value. Two- to four-unit homes, second homes and investment properties top out at 75%. Occupancy sets leverage, so a cash-out is not limited to owner-occupied homes. In Texas, a cash-out on a homestead (a Section 50(a)(6) loan) is capped at 80% of the home’s value by the state constitution, and the no-MI wholesale lane described below is not written there.
Credit comes second. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run at 36% or 45%, depending on score and reserves. Waiting periods after credit events are agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.
Mortgage insurance comes third. Agency (Fannie Mae and Freddie Mac) loans above 80% loan-to-value require it, except in the wholesale no-MI cash-out lane. Because a standard cash-out stops at 80%, the insurance question mostly arises on the rate-and-term path and on purchases. You can request cancellation at 80% of the original value with a good payment history, no subordinate liens and no decline in value. The servicer must end it automatically at 78%. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. The wholesale lane is the only route past the standard 80% limit: it reaches 89.99% with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed. It covers a primary residence at a conforming balance and has its own six months of seasoning.
Documentation is the friction point on all three. Expect pay stubs or other income evidence, asset statements, the current mortgage statement, title and ownership documents, and an appraisal. Files stall when the ownership clock is wrong. A borrower who refinanced eight months ago has restarted the 12-month clock, because a refinance creates a new note.
When a Cash-Out Refinance Is the Better Fit
It fits when you need a large sum at once and one payment is easier to manage than two. It fits when the existing first mortgage is a poor one anyway, so replacing it costs little. It also fits when you want fixed terms on the whole balance rather than a variable-rate line.
The tradeoffs are real. Cash-out pricing is higher than a no-cash-out refinance, because Freddie Mac applies a credit fee in price on cash-out loans. The whole balance gets repriced and the term resets. Closing costs apply as on any new first mortgage.
Edge case: a recent cash buyer can use delayed financing and skip the seasoning wait. It is still a cash-out loan with cash-out pricing.
When a Line of Credit Is the Better Fit
It fits when the first mortgage is worth keeping. A line leaves those terms alone, which matters most when your current loan is better than what a new first mortgage would offer. It fits when you need money in stages, such as a renovation paid over months, and don’t want to borrow it all on day one. Lendmire’s HELOC checklist for choosing between a cash-out refinance and a line of credit walks through that decision step by step.
The costs are different, not smaller. The CFPB says a cash-out refinance may be more or less expensive than a HELOC depending on terms. A variable rate means the budget can move. The step-up when repayment starts surprises borrowers who only planned for the draw period. You also carry two liens and two payments.
If you add a new second lien while refinancing the first, Fannie Mae treats the combination as limited cash-out, provided the first mortgage meets the limited cash-out criteria.
When a Traditional Refinance Is the Better Fit
It fits when the goal is the loan itself, not the cash. Changing the term, moving from an adjustable to a fixed loan, dropping a co-borrower or buying out a co-owner are all rate-and-term jobs. Leverage runs higher here, reaching 95% on a one-unit primary residence. It can reach 97% where the existing loan is agency-owned and the first-time-buyer program allows it. Above 80%, mortgage insurance is part of the picture on this path.
Government loans have their own streamlines. An FHA Streamline needs an existing FHA loan, no appraisal, limited credit review and a net tangible benefit. HUD also says FHA does not allow closing costs to be rolled into the new mortgage amount of a streamline. A VA IRRRL needs an existing VA loan, carries a 0.5% funding fee unless exempt, needs no VA appraisal and requires a net tangible benefit. Seasoning is the later of 210 days and six payments. Neither streamline produces cash. A veteran who needs cash from a VA loan needs a VA cash-out refinance, a different product. Above the conforming limit, jumbo lanes take over with a 660 decision score, leverage to 90% and loans to $5,000,000.
Where Files Go Wrong
Seasoning errors. Borrowers assume the clock started at purchase. It restarts at each new note.
Equity math that ignores liens. The leverage cap counts all liens, so a second mortgage or open line eats into cash-out room.
Treating a line as free money. The payment reset is the part that hurts.
Rolling costs without checking the balance. Before you finance closing costs, compare the new balance against the one you have now.
Paying off debt with equity. Using home equity this way moves the debt onto your home. It does not make the debt go away, and it adds foreclosure risk if you later can’t pay.
The Balanced Verdict
Pick the cash-out refinance if the first mortgage should change and you want one lump sum. Pick the line if the first mortgage should stay and your need is staged. Pick the traditional refinance if you want the loan restructured and the cash is incidental. None is cheaper in every case, and each depends on your existing loan, your equity and your credit. If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Key Terms Defined
Seasoning: the time a loan or title ownership must exist before a new cash-out loan is allowed.
Limited cash-out refinance: a refinance that pays off the first mortgage and costs with only incidental cash back; also called rate-and-term.
Loan-to-value (LTV): the loan balance divided by the home’s appraised value.
Net tangible benefit: a measurable gain required on FHA and VA streamlines, such as a lower combined rate or a move from adjustable to fixed.
Delayed financing: an exception letting a recent cash buyer take cash out without the usual wait.
Frequently Asked Questions
Is a cash-out refinance harder to get than a traditional refinance?
Usually, yes. Leverage is lower (80% versus up to 95% on a one-unit primary residence), and seasoning rules apply. The first mortgage must be at least 12 months old, and a borrower must have been on title for six months. Documentation is full on both.
Can I do a cash-out refinance and keep my current line of credit?
Possibly, but the line counts toward the combined leverage cap. A larger open balance leaves less room for cash-out. The line’s lender may also require subordination.
Can an FHA Streamline or VA IRRRL give me cash?
No. Both are no-cash products for existing FHA or VA loans. They require a net tangible benefit. A VA borrower needing cash must use a VA cash-out refinance.
Does a cash-out refinance require mortgage insurance?
Above 80% loan-to-value on the agency path, yes, with one exception: the wholesale no-MI cash-out lane. That lane reaches 89.99% with no mortgage insurance at a 680 score, on a thirty-year fixed primary residence at a conforming balance. A standard conventional cash-out stops at 80% on a one-unit primary residence, which is the point where mortgage insurance begins to apply. Terms are subject to lender guidelines.
Can I cash out on a second home or rental?
Yes, but occupancy sets the leverage. Second homes and investment properties are limited to 75% on conventional cash-out.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B2-1.3-03
4. Freddie Mac cash-out refinance product page
5. CFPB, similar loans to a HELOC
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance Requirements on One Income · Cash-Out Refinance Requirements for Home Improvement Projects · Lender Credit vs Paying Costs Upfront on a Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.